A week ago, the Washington Capitals were bubbly, after that 7-1 rout of the New York Islanders, and dreams of a playoff berth danced in many of their heads.

Today, following a 6-3 loss to the New York Rangers Saturday night, the Capitals are reeling from a three-game losing streak, they are once again in sole possession of 21st place in a 21-team league and only owner Abe Pollin and his employes are entertaining playoff thoughts.

When the team is at a low ebb, idle talk invariably turns to the Capitals' most marketable item, all-star defenseman Robert Picard. A topic of discussion among those gathered here for Tuesday's NHL All-Star Game is the possibility of a Picard trade to Toronto for Darryl Sittler. To which, as he has often in the past, Washington General Manager Max McNab replies, forget it.

"Pic's name has not come up in any discussion and we haven't given any thoughts to moving him," McNab said. "His game is not at the same level that it was at a comparable time last year, but we consider him a potential game breaker."

Picard is fourth in team scoring and leads the Capitals in shots on goal, but his performance rating of minus 20 is the club's worst, he is not especially popular among his teammates and there was some grumbling last week when Coach Al Arbour of the New York Islanders chose him to be the token Capital on the Campbell Conference All-Stars.

"I'm upset by the way things are going," Picard said. "I don't know what more I can say. I've heard some talk that people were upset about it (the all-star selection), but I had nothing to do with it.

"I play when I'm asked to play. I'm going to play in the All-Star Game and I expect to play the next night (the Capitals are here Wednesday)."

The man most observers felt was deserving of the all-star berth, defenseman Rick Green, is here on another mission, as the Capitals' player representative.

"I would have liked to be selected, but if I wasn't, that's it," Green said. "I certainly don't have any hard feelings about Pic. We're friends and we're in this together."

Actually, Green's efforts here figure to be far more influential than those of Picard. While the All-Star Game is considered a mere serving of French pastry, the Players' Association has some weighty matters to discuss, including the future of Executive Director Alan Eagleson and the handling of free-agent compensation. Green, who is playing out his option, feels that the present compensation system is hopelessly restrictive.

The risk of losing players from a club's present roster, following the Rogie Vachon-Dale McCourt situation, virtually has shut down free-agent movement. Although the players agreed to a five-year contract last summer, they have the right to terminate it with two years' notice. Green expects that notice to be given Tuesday at the owners-players meeting here, forcing negotiation to revise the system.

"I think notice will be given to terminate the agreement in 1982," Green said. "We only agreed to the present contract last summer as a means of getting through the merger. But there have to be changes, even if we don't go as far as the baseball free-agent setup. It won't help me this year, but it will help other guys in the future."